Outlook in the Asian Region with a Focus on China

Transcription

1 Outlook in the Asian Region with a Focus on China Tianshu Xin Manager, Asian Powertrain Research Detroit, 6 October 2005 EVOLVING CONSUMER PREFERENCES Challenging Opportunities

2 Agenda Asian Regional Outlook China Market Key Characteristics China is Moving Towards Regulatory Solutions Impacts on Automotive Industry Due to Oil Fluctuation Potential and Concerns on Exports from China Local Content Policy Implications and Impact Fuel Consumption Standard Challenges Imminent Change to Car Consumption Tax Conclusion Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 2

3 2004: Vehicle Sales/Production Levels in Asia Thailand Sales Production 626K 928K India Sales Production 1.34m 1.51m China Sales Production 5.2m 5.05m S.Korea Sales Production 1.12m 3.47m Japan Sales Production 5.85m 10.51m Taiwan Sales Production 485K 431K Philippines Sales Production 88K 72.5K Malaysia Sales Production 488K 473K Indonesia Sales Production 484K 435K Australia Sales Production 955K 422K Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 3

4 Performance in These Key Markets Crucial for OEM Growth Prospects CHINA INDIA UNITED STATES JAPAN THAILAND 2010 vs 2004 Global Sales Growth 10.4 million units BRAZIL SOUTH KOREA CHINA INDIA THAILAND BRAZIL UNITED STATES 2010 vs 2004 Global Production Growth 11 million units SOUTH KOREA Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 4

5 Asia Will Account for Over Half of the Global Growth in the Next Decade Sales Growth (Million Units) million Growth in Global Sales million units in Asia NORTH AMERICA LATIN AMERICA 0.8 WEST EUROPE 1.5 EAST EUROPE 5.3 REST OF ASIA 4.4 Total Global Vehicle Sales (All Vehicles: includes Cars and CVs) 2004: 63.1 million 2015: 80.5 million CHINA JAPAN MIDDLE EAST and AFRICA Middle East & Africa 3.5% North America 27.8% Eastern Europe 6.6% China will account for over 12% of global sales in 2015 By 2015, Non-Japan Asia will Account for ~24% of Global Sales South America 5.6% Western Europe 22.0% Japan 8.2% Asia 24.1% China 12.1% India 4.7% ASEAN 4.1% Korea 2.3% Other Asia 3.1% Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 5

6 Key Asian Markets: Demand vs. Production in 2015 Million 10.0 Domestic Market Driven Export Driven Thailand South Korea India Japan China Demand Production Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 6

7 In Terms of Motorisation Rate, China is Lagging South Korea by 25 years...india Further Behind When was the 100 cars per 1000 person threshold reached? Germany: 1962 Korea: 1994 Japan: 1972 China: 2020? China is currently lagging Korea by over 25 years Passenger Cars per,000 persons Japan India Germany Korea China 21 in 2015 Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 7

8 China vs. India: Similarities and Differences Political, Business, Infrastructure Issues CHINA Communist/social political history. Political reforms very gradual. Centrally planned economy. Large stateowned enterprises (SOEs) in control. Gradual evolution to free market economy but slow development of private sector. Rapid development of infrastructure. Uneven development. Communist Party has recognised this. High level of foreign direct investment, especially from overseas Chinese. China has become the world s factory. INDIA Democratic traditions. The largest democracy in the world. Historically, a highly protected and centrally planned economy. Large private business conglomerates. Rapid reforms and deregulation in the 1990s. Urban areas in need of major regeneration. Slower progress in development of transport infrastructure. Uneven development. Democratic process highlighted this in 2004 elections. India s record of attracting FDI has been disappointing. India has gained prominence in IT and service sectors. Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 8

9 China vs. India: Similarities and Differences Vehicle Market CHINA Historically, vehicle demand mainly from institutional sector (government, SOEs, taxis). Institutional bias has supported sales of medium-size and larger cars. Evolution of private demand is boosting sales of compacts and sub-compacts. Balanced growth in all parts of passenger car market, which provides opportunities for most companies. Booming truck market. FAW and Dongfeng key players but require access to foreign technology. Many new players, including foreign JVs. A significant market for high-end imported trucks. INDIA Historically, institutional demand has played a limited role. Private demand has formed the core demand. Outdated technology history, low vehicle price and limited institutional demand characterise segmentation. Maruti s role as national car project reinforced the role of the small affordable car. Skewed Segmentation Profile. Strong growth in small affordable car segments. Best opportunities for companies with strength in affordable small cars. Booming truck market. Tata and Ashok Leyland are key players. Both have strong in-house development skills. Foreign players making very slow progress. Very limited imports. Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 9

10 China Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 10

11 Passenger Cars Market Dynamics Harbin Hafei, 9.1% Changhe 9.5% Others, 21.4% 1999 Dominated by VW in Sedan Changan 13.4% VW Group, 33.1% Toyota, 13.5% VW will lose its leading position Japanese/South Korean OEMs will pose strong challenges Competition will remain strong CHERY, 4.4% HONDA, 5.3% OTHERS, 32.7% 2010 GM, 14.7% AVICHINA, 7.1% HYUNDAI 8.3% VW GROUP, 9.8% TOYOTA, 8.5% CHANGAN, 9.2% Other foreign OEMs were in their infancy Chinese OEMs strong in Minibus OTHERS, 28.6% 2004 HONDA, 6.4% TOYOTA, HYUNDAI, 7.3% 7.4% VW GROUP, 19.0% AVICHINA, 7.6% GM, 13.4% CHANGA N, 10.4% Passenger car growing fast VW is losing its market share Intensified competition Buyer s market Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 11

12 What Chinese Consumers Want Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 12

13 China is Moving Towards Regulatory Solutions May 2004 Overloading Restriction Sept 2004 EURO II Emission Standard Implementation Jan 2005 New Official Vehicle Classification System Stabilising with Sustainable Growth April 2005 Issued EURO III & IV Emission Standard Plan 2006/2007 Fuel Tax Bigger consumption tax gaps based on Engine Sizes 1994 Auto Industry Policy June 2004 New Auto Industry Policy Fast Growing Market Oct 2004 Auto Loan Policy April 2005 New Local Content Regulation Auto Distribution Regulation Jul 2005 Phase I Fuel Consumption Standard Oct 2005 Hybrid Standards Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 13

14 Regulated Oil Market in China Dominated by Sinopec and PetroChina Fully Open in US$ Per Barrel Oil Price Gasoline Price RMB Jan FebMar Benchmark: Singapore, Rotterdam, and New York Retail Price = Benchmark x 1.08 or 0.92 Apr May Jun Jul Aug Sept Oct Nov Dec-03 JanFeb Mar Apr May JunJul Aug Sept Oct Nov Dec-04 Jan Feb Mar April May june Jul-05 Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT

15 China Oil Production vs. Consumption Production Consumption Million Tons Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 15

16 Relationship between Oil Production and Consumption by Automobile Gasoline Consumption Diesel Consumption Others 14% Automobile 23.4% Automobile 86% Others 76.6% Source: Automotive Industry of China (2004) Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 16

17 No Significant Difference on Fuel Price Gasoline RMB Diesel 5% Feb- 03 May- 03 Jul- 03 Dec- 03 Mar- 04 May- 04 Aug- 04 Mar- 05 May- 05 Jun- 05 Jul- 05 Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 17

18 Monthly Incremental Running Cost Due to High Oil Price 80 US$ $12/mth $16/mth Sep-05 30% Fuel Tax At constant 15,000 km per year, and fuel consumption at 8.5L/100km Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 18

19 A New Tax on Fuel is Almost Certain RMB Feb % Increase May-03 Jul-03 Dec-03 Mar-04 Gasoline May % Increase Aug-04 Mar-05 Diesel May-05 30% Increase Jun-05 Jul-05 30% Fuel Tax 100% Fuel Tax 100% Increase Oil Crisis Fuel Price Increase Running Cost Increase Sales Slowdown Production Slowdown Macro Economy Slowdown Consumer Confidence Declines Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 19

20 High Fuel Price Implications and Impact Consumers will change their purchasing behaviour Running costs concern Unlikely to be implemented in 2005, but possibly in 2006 Interests balance between central government and local authorities High oil price Will it put pressure on China s economy Inflation? Will farmers have a heavier burden? Will diesel passenger cars gain momentum? Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 20

21 Will All the Announced Capacity Really Come on Stream? Passenger Cars Only 10.0 Million Units Production Announced Capacity Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 21

22 Can Made in China Succeed in Developed Markets 1950s (US Dollar per Barrel - M onthly Average) Fuel Efficiency Reliable Quality M M M M M M M M M CRUDE O IL S P O T P RICE (FO B): W ES T TEX AS INTERM EDIATE (W.T.I), NS A - U.S. Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 22

23 Potential for Exports from China In 2004, exported 12,954 units Cars, SUVs & MPVs, with less than 1% of total passenger car production. Latin America, Europe, 5% 4% Africa, 33% North America, 1% Others, 2% Asia&Mid dle East, 55% VW already started to export Polo to Australia. GM is exporting Buick GL8 to Philippines. Honda will export 50,000 small cars to Europe & Southeast Asia from Chery aims to export 250,000 cars a year to U.S. from 2007; aims to export cars to W.E. from Chrysler may build a compact car in China for export to U.S. Jiangling Landwind is exported to Europe. Other domestic OEMs will continue to target Africa and Middle East. Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 23

24 Chinese Government Plan in Discussion Potential Main Export Bases Plan to establish a number of export bases for vehicles and components Achieve 10% of total global auto export trading by 2015 Resolve possible overcapacity Provide financial support in loan, tax, & R&D Domestic manufacturers: CHERY, GEELY, BYD, HAIFEI, CHANGAN, GREATWALL; FAW, DONGFENG HCVs Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 24

25 Concerns for Exports from China Domestic demand is still priority for foreign vehicle manufacturers. Rising and excess capacity, stabilising chinese market Which market to export? Relaxation of restriction on foreign ownership of assembly plants if it s export orientated. Honda owns 65% of Honda Automobile (China) Co. Restriction on domestic market orientated foreign ownership of assembly ventures. Lack of brand image, brand awareness, brand recognition, and infrastructure. Chinese vehicle manufacturers have different strategies. Geely, Greatwall, and others will mainly target Africa, Middle East, and South America. Chery has ambitions to enter and compete in NA and Europe. Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 25

26 Local Content Regulation CKD and SKD are regarded as a CBU import. Body Body 1+3 or + Any THREE of FIVE Engine Engine Effective from 1 April 2005 Transmission Braking Chassis Axles Steering Transmission Braking Chassis Axles Steering If total cost of imported components accounts for 60% or more of a complete vehicle retail price, the vehicle will be regarded as a CBU import. This will be implemented from 1 July Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 26

27 Reasons for Local Content Regulation After WTO entry in 2001, previous local content policy has been discontinued. Many foreign OEMs took strategy of IMPORT COMPONENTS ASSEMBLE DOMESTICALLY In 2004, value of imported key parts and components reached $10.9 billion accounting for 66.9% of total auto industry imports. 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Reduction of Import Duties after WTO Difference 21.9% Jan- 06 CBU IMPORT >=3.0L COMPONENTS Difference 15% Jul- 06 CBU IMPORT <3.0L 2007 CKD/Passenger Cars % 16% 14% 12% 10% 8% 6% 4% 2% Catching the Last Train Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 27

28 Local Content Regulation: Implications & Impact To foster development of domestic auto industry through investment in core technologies and subsystems by discouraging kit assembly To guide more investment in the nation's auto components sector to build a strong foundation for the auto industry Fill a loophole in the policy to reduce the loss of tax revenue Foreign OEMs need to meet the regulation while ensuring the quality and reducing cost Foreign OEMs will have to optimize their supply chain domestically Continuing to use the same global suppliers in China Finding other foreign suppliers in China Identifying high quality Chinese suppliers Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 28

29 Fuel Consumption Standard L/100Km Weight 1/7/2005 1/1/2008 KVW<=750kg kg<KVW<=865kg kg<KVW<=980kg kg<KVW<=1090kg kg<KVW<=1205kg kg<KVW<=1320kg kg<KVW<=1430kg kg<KVW<=1540kg kg<KVW<=1660kg kg<KVW<=1770kg kg<KVW<=1880kg kg<KVW<=2000kg kg<KVW<=2110kg kg<KVW<=2280kg kg<KVW<=2510kg kg<KVW Applicable to both gasoline and DIESEL vehicles Applicable to both domestically made and imports For passenger cars with some configurations, limits relax by 6% Phase II limits correspond with global average passenger car level in 2002 Will have more impact on SUVs than Sedans Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 29

30 Methodologies for Fuel Consumption Standard U.S. Denotation CAFE (Corporate Average Fuel Economy) Japanese Denotation Classified by Weight WITH adoption of the CAFE method in a weight class Chinese Denotation Classified by Weight WITHOUT adopting the CAFE method in a weight class Evaluates the average fuel consumption of different type of vehicles by sales amount within a company CAFE has only one limit so company can produce vehicles with high and low fuel consumption without constraint Government can control the gross amount of fuel consumed by vehicles Company must produce sufficient variation of vehicles Vehicles are classified into 9 classes Vehicles within a class are averaged by the CAFE method and evaluated All the weight classes need to improve their fuel economy Government can guide vehicles of different weights depending on which one it prefers to develop Weight classifying method is suitable for China due to fewer vehicle models produced by an OEM Based on the fuel consumption level of the passenger cars domestically produced before 2002 Referring to the reference weight classification of emission standard, the kerb weight is divided into 16 classes Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 30

31 SUV Demand Comparison in Total LV Market 30.0% 25.0% 20.0% 15.0% 10.0% Cheap fuel price Less strict fuel consumption on LCVs Fuel Consumption Standard PHASE I PHASE II Not to repeat the U.S. lesson in China Scarce oil resources Environmental concerns Increasing fuel price Planning highest consumption tax for SUVs US CHINA 5.0% 0.0% Expensive fuel price Stricter fuel consumption standard Lifestyle preference JAPAN Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 31

32 Implications for Major OEMs Domestic: 2003 Sales Phase I and II Compliant vs. Noncompliant 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% VW GROUP GM Honda Toyota 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% VW GROUP GM Honda Toyota Vehicles Compliant Phase I Source: World Resource Institute Vehicles Non-Compliant Phase I Japanese OEMs have the advantage Encourage international OEMs to update their technologies Diesel car can have the advantage Domestic players need to invest in technology Vehicles Compliant Phase II Vehicles Non-Compliant Phase II Difficult time for Luxury imports Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 32

33 Imminent Change to Consumption Tax 20% Consumption Tax 14% 20% 15% 10% 5% 3% 5% 8% 1% 3% 5% 0% /2006 CC<1.0L 1.0L=<CC<1.6L 1.6=<CC<2.2L 2.2L=<CC<3.0L CC>=3.0L Supplement to 2004 Auto Policy Increase to 5-category of engine size, with bigger taxation gap among the categories Reduce fuel consumption and pollution by auto industry Discourage ownerships of big engine size cars and SUVs (CC<2.4L: 5% currently) Will local authorities abolish bias towards cars with engine size below 1.0L-1.3L??? 80% 60% 40% 20% 0% 2010 Market Share For Car Engine Size CC<1.0L 1.0L=<CC<1.6L 1.6=<CC<2.2L 2.2L=<CC<3.0L CC>=3.0L Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 33

34 Conclusion Asian region will be main growth engine for global auto industry China is moving towards a more regulated market with sustainable growth Industrial policy puts more emphasis on oil resources and environmental concerns To increase competitiveness of Chinese auto industry by guiding investment in core technologies and subsystems Competition on both Volume and Market Share will be intensified OEMs will have to optimize their cost chain to maintain their profits Chinese market will still present significant opportunities in the next decade Copyright 2005 Global Insight, Inc GLOBAL AUTOMOTIVE CONFERENCE DETROIT 34

35 Tianshu Xin Manager, Asian Powertrain Research Tel: